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Baptist Foundation of Arizona Executives Sentenced to Prison

Two former Baptist Foundation of Arizona executives were sentenced to prison Friday and ordered to pay $159 million in restitution in a fraud case involving what is thought to be the largest non-profit bankruptcy in the nation’s history.

William Crotts, the foundation’s ex-president, was sentenced to eight years for fraud and seven years for illegally conducting an enterprise. Thomas Grabinski, BFA’s ex-general counsel, received a six-year term for fraud and five years for illegally conducting an enterprise. Both sentences run concurrently. <?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />
 
They were convicted July 24, following a 10-month trial.
 
The two men were among eight former foundation leaders indicted in May 2001 on charges of defrauding 11,000 investors from several states out of $550 million in a Ponzi scheme in the late 1990s. Most pleaded guilty in exchange for reduced charges and agreeing to cooperate with the prosecution.
 
Former investors pleaded both for maximum sentences and for leniency in hearings Thursday and Friday.
 
“I had to sell my home and live in a mobile home,” said Allene Thompson, 82. “I can no longer do things I hoped to do when I retired. I feel betrayed.”
 
“You will never ever convince me that Bill Crotts or Tom Grabinski got out of bed and said ‘Let’s figure out a way to take away people’s wealth,'” countered Byron Banta, 71, a retired pastor at <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />CoronaBaptistChurch in Chandler, Ariz. “That was never their intention.”
 
One defendant, former BFA board member Lawrence Dwain Hoover, has cancer and was too ill to stand trial with Crotts and Grabinski. He accepted a plea bargain Sept. 5 and awaits sentencing Nov. 29. Sentencing for the remaining defendants has not been scheduled.
 
“It is my hope that the sentences imposed today will help close this sad chapter for the thousands of victims who placed their trust and their hard-earned money in the defendants’ hands,” Arizona Attorney General Terry Goddard said in a press release. “This case demonstrates my resolve to pursue white collar criminals no matter how complex the deception or difficult the prosecution.”
 
Prosecutors said the defendants talked investors into putting money into BFA investments and savings accounts, which were supposedly backed by collateral. Investors were told their money would perform better than if in a bank, and some of the earnings would benefit Baptist causes.
 
In fact, prosecutors allege, the Foundation stayed afloat by using funds from new investors to meet its financial obligations. Losses were hidden in a series of “bad banks” backed by overvalued real estate and worthless IOUs.
 
The Attorney General’s office began an investigation in 1998 after a series of newspaper reports quoted former employees alleging red flags. The state ordered the BFA to stop selling securities, and it soon filed the largest non-profit bankruptcy in U.S. history. The case is one of the largest affinity fraud cases in U.S. history.
 
Arthur Andersen, which later was accused of a similar role in the collapse of Enron, settled a civil class-action suit in 2002 for $217 million, while denying any wrongdoing. A BFA Liquidation Trust set up by a bankruptcy court had by March recovered $453 million through settlements and sale of assets, paying investors, depending on the type of account, either 69 percent or 55 percent of their original investments.
 
A 12-member jury convicted Crotts and Grabinski on three counts of fraudulent schemes and one count of conducting an illegal enterprise, following a nearly year-long trial. But jurors acquitted the duo of 23 counts of theft, saying they didn’t intend to steal from investors but got in over their heads and tried to cover it up.
 
Bob Allen is managing editor of EthicsDaily.com.